Free Reply Memorandum - District Court of California - California

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1 MICHAEL L. CHARLSON (Bar No. 122125)
LAURENCE A. WEISS (Bar No. 164638)

2 ALEXANDER M.R. LYON (Bar No. 211274)
HELLER EHRMAN LLP

3 275 Middlefield Road
Menlo Park, California 94025-3506

4 Telephone: (650) 324-7000
Facsimile: (650) 324-0638

5 [email protected]
[email protected]

6 [email protected] 7 Attorneys for Defendants
THRESHOLD PHARMACEUTICALS, INC.,

8 HAROLD E. "BARRY" SELICK
and JANET I. SWEARSON

9 10 11 12 13 Others Similarly Situated, 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION ) ) ) Plaintiff, ) ) v. ) ) THRESHOLD PHARMACEUTICALS, INC., ) HAROLD E. "BARRY" SELICK and JANET I. ) SWEARSON ) ) Defendants. ) __________________________________________ ) RAYNOLD L. GILBERT, On Behalf of Himself ) and All Others Similarly Situated, ) ) Plaintiff, ) ) v. ) ) THRESHOLD PHARMACEUTICALS, INC., ) HAROLD E. "BARRY" SELICK and JANET I. ) SWEARSON ) ) Defendants. ) JERRY TWINDE, On Behalf of Himself and All Case No.: 4:07-CV-04972-CW CLASS ACTION REPLY MEMORANDUM IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS PLAINTIFFS' CONSOLIDATED AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS Hearing Date: Hearing Time: Place: Judge: June 19, 2008 2:00 p.m. Courtroom 2, 4th Floor Hon. Claudia Wilken

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1 2
I.

TABLE OF CONTENTS INTRODUCTION................................................................................................................. 1 PLAINTIFFS' REGISTRATION ACT CLAIMS ARE TIME-BARRED........................... 2 THE '33 ACT CLAIMS ALSO FAIL BECAUSE PLAINTIFFS DO NOT IDENTIFY A MATERIALLY FALSE STATEMENT IN EITHER REGISTRATION STATEMENT ......................................................................................... 5 A. The Registration Statements Are Not Actionable Under The Bespeaks Caution Doctrine and the PSLRA Safe Harbor......................................................... 5 The Information Allegedly Omitted From The Registration Statements About The Bari Study Either Was In Fact Disclosed Or Was Immaterial ......................................................................................................... 7 1. 2. C. The Bari Study's Design ............................................................................... 7 The Bari Study's Publication ........................................................................ 8

3
II.

4
III.

5 6 7 8 9 10 11 12 13 IV. 14 15 16 17 18 19 20 21 22 23 V. 24 25 26 27 28

B.

The Scientific Data Did Not Indicate A Material Risk Of Liver Toxicity ................................................................................................................... 10

PLAINTIFFS' SECTION 10(B) CLAIM SHOULD BE DISMISSED.............................. 12 A. Plaintiffs' Narrowed Fraud Claim Still Lacks The Required Particularity ............................................................................................................. 12 1. 2. Plaintiffs' Misquotation Of Dr. Selick's March 1, 2006 Conference Call Statement Does Not Adequately Plead Fraud.................. 13 The March 20, April 5, and May 10, 2006, Press Releases Were Not Rendered Misleading By The Appearance Of SAEs In Clinical Trials.......................................................................................... 14 The May 11, 2006, Press Release and Conference Call Cannot Support A Fraud Claim Either .................................................................... 16

3. B. C.

Plaintiffs' Additional Scienter Allegations Do Not Salvage The Fraud Claim ....................................................................................................................... 17 The Section 10(b) Claim Against Ms. Swearson Must Be Dismissed.................... 20

CONCLUSION ................................................................................................................... 20

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1 2

TABLE OF AUTHORITIES Federal Cases

3 Barbera v. WMC Mortgage Corp., 4
2006 WL 167632 (N.D. Cal. 2006)....................................................................................... 13 485 U.S. 224 (1988) ...................................................................................................... 4, 8, 12

5 Basic Inc. v. Levinson, 6 7

Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101 (7th Cir.1984)................................................................................................ 13 2003 U.S. App. LEXIS 14546 (4th Cir. 2003)........................................................................ 4 73 F. Supp. 2d 923 (N.D. Ill. 1999) ..................................................................................... 17

8 Cohen v. USEC, Inc., 9 10 Danis v. USN Commc'ns, Inc., 11 12

Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) .............................................................................................................. 16 527 F. Supp. 2d 384 (E.D. Pa. 2007) .................................................................................... 12 Grossman v. Novell, Inc., 120 F.3d 1112 (10th Cir. 1997)............................................................................................. 15 Harris v. IVAX Corp., 182 F.3d 799 (11th Cir. 1999)................................................................................................. 6 2006 U.S. Dist. LEXIS 28684 (W.D. Wash. 2006) ........................................................ 14, 16 In re Alamosa Holdings, Inc. Sec. Litig., 382 F. Supp. 2d 832 (N.D. Tex. 2005).................................................................................... 4

13 Gargiulo v. Isolagen, Inc., 14 15 16 17

18 Heywood v. Cell Therapeutics, Inc., 19 20 21

In re Amgen, Inc. Sec. Litig., 2008 U.S. Dist. LEXIS 24611 (C.D. Cal. 2008) ................................................................... 15 22

23 In re Amylin Pharm., Inc. Sec. Litig., 24 25
2002 U.S. Dist. LEXIS 19481 (S.D. Cal. 2002) ................................................................... 12 In re Amylin Pharm., Inc. Sec. Litig., 2003 U.S. Dist. LEXIS 7667 (S.D. Cal. 2003) ................................................................... 6, 8

26 In re Bayer AG Sec. Litig., 2004 U.S. Dist. LEXIS 19593 (S.D.N.Y. 2004) ................................................................... 15 27 28
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1 In re Calpine Corp. Sec. Litig., 2 3 4
288 F. Supp. 2d 1054 (N.D. Cal. 2003) ................................................................................ 19 In re Convergent Techs. Sec. Litig., 948 F.2d 507 (9th Cir. 1991)................................................................................................... 8

In re Eli Lilly & Co. Sec. Litig., 2008 U.S. Dist. LEXIS 35162 (E.D.N.Y. 2008) ................................................................. 3, 4 5

6 In re Entropin Sec. Litig., 7 8 9
487 F. Supp. 2d 1141 (C.D. Cal. 2007).......................................................................... 17, 18 In re Gupta Corp. Sec. Litig., 900 F. Supp. 1217 (N.D. Cal. 1994) ..................................................................................... 20

In re Harmonic Inc. Sec. Litig., 163 F. Supp. 2d 1079 (N.D. Cal. 2001) .................................................................................. 9 10

11 In re Infonet Services Corp. Sec. Litig., 12 13
310 F. Supp. 2d 1080 (C.D. Cal. 2003)................................................................................... 6 In re Immune Response Sec. Litig., 375 F. Supp. 2d 983 (S.D. Cal. 2005) ............................................................................... 8, 12

14 In re Impax Labs., Inc., Sec. Litig., 2007 U.S. Dist. LEXIS 52356 (N.D. Cal. 2007)................................................................... 19 15 16 In re JDS Uniphase Corp. Sec. Litig.,
2005 U.S. Dist. LEXIS 20831 (N.D. Cal. 2005)..................................................................... 5

17 18
In re J.P. Morgan Chase Sec. Litig., 363 F. Supp. 2d 595 (S.D.N.Y. 2005)................................................................................... 18

19 In re Merck & Co., Sec. Deriv. & ERISA Litig., 483 F. Supp. 2d 407 (D.N.J. 2007) ......................................................................................... 5 20 21 In re Merrill Lynch & Co. Research Reports Sec. Litig., 22 23
In re Merrill Lynch & Co., 272 F. Supp. 2d 243 (S.D.N.Y. 2003)..................................................................................... 9 2005 U.S. Dist. LEXIS 38823 (N.D. Cal. 2005)................................................................... 20 61 F. Supp. 2d 982 (D. Ariz. 1999)....................................................................................... 20 289 F. Supp. 2d 429 (S.D.N.Y. 2003)..................................................................................... 5

24 In re Netopia, Inc. Sec. Litig., 25 26 In re Petsmart, Inc. Sec. Litig., 27 28

In re Portal Software, Inc. Sec. Litig., 2006 U.S. Dist. LEXIS 61589 (N.D. Cal. 2006)..................................................................... 5
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1 In re Regeneron Pharm. Sec. Litig., 2 3 4
2005 U.S. Dist. LEXIS 1350 (S.D.N.Y. 2005) ....................................................................... 6 In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999)........................................................................................... 18, 19

In re Stac Elect. Sec. Litig., 89 F.3d 1399 (9th Cir. 1996)................................................................................................... 5 5

6 In re Stratosphere Corp. Sec. Litig., 7 8 9
1 F. Supp. 2d 1096 (D. Nev. 1998) ....................................................................................... 20 In re Syntex Corp. Sec. Litig., 95 F.3d 922 (9th Cir. 1996)................................................................................................... 11

In re USEC Sec. Litig., 190 F. Supp. 2d 808 (D. Md. 2002) .................................................................................... 4, 5 10

11 In re VeriFone Sec. Litig., 12 13
11 F.3d 865 (9th Cir. 1993)............................................................................................... 7, 15 In re Worlds of Wonder Sec. Litig., 35 F.3d 1407 (9th Cir. 1994)............................................................................................... 6, 9

14 Intri-Plex Technologies, Inc. v. Crest Group, Inc., 499 F.3d 1048 (9th Cir. 2007)............................................................................................... 13 15 16 Kaplan v. Rose,
49 F.3d 1363 (9th Cir. 1994)......................................................................................... 5, 8, 10

17 18
Kapps v. Torch Offshore, Inc., 379 F.3d 207 (5th Cir. 2004)................................................................................................... 9

19 Klein v. GNC, Inc., 186 F.3d 338 (3rd Cir. 1999) ................................................................................................ 10 20 21 Lentell v. Merrill Lynch & Co., 22 23
Lipton v. Pathogenesis Corp., 284 F.3d 1027 (9th Cir. 2002)............................................................................................... 17 547 U.S. 71 (2006) ................................................................................................................ 14 391 F.3d 698 (5th Cir. 2004)................................................................................................... 4 396 F.3d 161 (2d Cir. 2005).................................................................................................... 3

24 Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 25 26 Miller v. Nationwide Life Ins. Co., 27 28

Miller v. Thane Int'l, Inc., 519 F.3d 879 (9th Cir. 2008)................................................................................................. 10
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1 Mullis v. United States Bankr. Ct., 2 3 4
828 F.2d 1385 (9th Cir. 1987)............................................................................................... 13 Nishimatsu Constr. Co., Ltd. v. Houston Nat'l Bank, 515 F.2d 1200 (5th Cir. 1975)............................................................................................... 13

No. 84 Employer-Teamster Joint Council Pension Trust Fund v. America West Holding Corp., 320 F.3d 920 (9th Cir. 2003) ....................................................................... 18 5

6 Noble Asset Mgmt. v. Allos Therapeutics, Inc., 7 8 9
2005 U.S. Dist. LEXIS 24452 (D. Col. 2005) ........................................................................ 6 Nursing Home Pension Fund, Local 144 v. Oracle Corp., 380 F.3d 1226 (9th Cir. 2004)................................................................................................. 8

Rubke v. Capitol Bancorp Ltd., 460 F. Supp. 2d 1124 (N.D. Cal. 2006) .................................................................................. 9 10

11 Steiner v. Hale, 12 13
868 F. Supp. 284 (S.D. Cal. 1993) ........................................................................................ 14 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007) .......................................................................................................... 14

14 TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976) .............................................................................................................. 12 15 16 Vess v. Ciba-Geigy Corp. U.S.A.,
317 F.3d 1097 (9th Cir. 2003)................................................................................................. 5

17 18 19 20 21 22 23
15 U.S.C. § 77m .................................................................................................................................. 2 28 U.S.C. § 1658(b) ............................................................................................................................ 2 Warshaw v. Xoma Corp., 74 F.3d 955 (9th Cir. 1996)..................................................................................................... 6

Federal Statutes

Federal Regulations

24 21 C.F.R. § 202.1(e)(1) ..................................................................................................................... 12 25 21 C.F.R. § 312.21(c)........................................................................................................................ 11 26 21 C.F.R. § 312.32 ............................................................................................................................ 15 27 28
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1 I. 2

INTRODUCTION Defendants' opening brief showed that the Complaint1 should be dismissed for, among other

3 reasons, failure to plead with the required particularity. In response, Plaintiffs retreat from the 4 Complaint's allegations of knowing misconduct dating from Threshold's IPO in an apparent 5 attempt, ultimately unavailing, to invoke a relaxed pleading standard for some of their claims. The 6 incongruity between the Complaint's allegations and Plaintiffs' new theory is reason enough to 7 require repleading. But more significantly, Plaintiffs' recharacterization of their claims points up 8 hopeless flaws that mandate dismissal of certain claims with prejudice. 9
Plaintiffs' new theory makes plain that the claims directed to the Registration Statements for

10 Threshold's two stock offerings, which Plaintiffs now say arise only under the Securities Act of 11 1933 ("'33 Act"), are barred by the one-year statute of limitations: under Plaintiffs' own 12 allegations, many (if not all) of the facts about supposed flaws in the Bari Study and liver problems 13 in prior studies of lonidamine that Plaintiffs say were omitted from the Registration Statements 14 were disclosed to investors more than one year before Plaintiffs filed suit. The claims are barred. 15
But even if the '33 Act claims were timely, Plaintiffs cannot overcome that the Registration

16 Statements were replete with risk disclosures that accurately described Threshold as a risky bet on 17 unproven technology and thereby bespoke caution (and with respect to the follow-on offering 18 triggered the PSLRA safe-harbor) about the need for Threshold to conduct further clinical trials 19 (including placebo-controlled tests) to determine the safety and efficacy or not of TH-070. 20 Plaintiffs' rhetoric does not and cannot contradict Defendants' showing that the information 21 allegedly omitted was in fact disclosed, or was immaterial. 22
The rump Section 10(b) fraud claim ­ now limited to a handful of statements allegedly

23 made in conference calls and press releases shortly before Threshold discontinued development of 24 TH-070 ­ should also be dismissed. First, Plaintiffs do not seriously dispute that their claim is 25 based on misquotations. Their contention that the Court must ignore their errors contradicts the 26 PSLRA and recent Supreme Court authority. Second, Plaintiffs cannot eschew the cases holding 27
1

28 brief. See Mot. at 4 n.2 (defining terms for exhibits).

Terms defined in Defendants' Motion to Dismiss ("Mot.") have the same meanings in this

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1 that adverse patient events are immaterial absent additional allegations ­ not present here ­ that the 2 events were sufficiently important to affect the drug's commercial prospects. Third, Plaintiffs fail 3 to allege with the required specificity that Defendants had any advance knowledge of the blinded 4 clinical trial data, and fail to present allegations supporting an inference of scienter, cogent and 5 compelling or otherwise. 6
Defendants' motion does not require the Court to resolve any dispute of fact. The

7 Complaint's allegations, along with materials the Court may consider in resolving this motion, 8 reveal that the Complaint is deficient as a matter of law and must be dismissed. 9 II. 10
PLAINTIFFS' REGISTRATION ACT CLAIMS ARE TIME-BARRED As we discuss below, there were no material omissions or misstatements in the Registration

11 Statements covering either of Threshold's public offerings. But the Court need not reach those 12 issues because Plaintiffs' claims directed to the Registration Statements are untimely. 13
Plaintiffs now assert that they challenge Threshold's Registration Statements solely under

14 Sections 11 and 12 of the '33 Act. See Opp. at 1-2, 6. Taking Plaintiffs at their word, there can be 15 no doubt that the claims are time-barred. The limitations period applicable to '33 Act claims is one 16 year, 15 U.S.C. § 77m, not the two years applicable to '34 Act claims, 28 U.S.C. § 1658(b).2 Under 17 Plaintiffs' allegations, the information they say was omitted from the Registration Statements was 18 disclosed more than a year before Plaintiffs sued. In particular, the Complaint alleges that: 19 20 21 22 23 24
2

·

in June 2005, the Bari Study's principal investigator published an article disclosing the very information about the Bari Study that Plaintiffs contend was omitted from the Registration Statements,3 AC ¶¶ 65, 66, 78; and on May 11, 2006, Threshold "shocked investors" by announcing that the FDA had placed a partial clinical hold on TH-070 trials due to liver toxicity problems and "admitted" that data existed showing what Plaintiffs say were liver toxicity "trends" in the prior literature on lonidamine, AC ¶¶ 71, 102.

·

As Plaintiffs' Complaint concedes that information purportedly demonstrating errors in the Because the Complaint appears to allege a Section 10(b) fraud claim throughout the class

25 period, including with respect to the Registration Statements, Defendants' motion to dismiss 26 aside the ambiguity within the Opposition on this point, Plaintiffs' claims based on the IPO 27

focused on the two-year period applicable to Section 10(b) claims. See Mot. at 12-13. Putting

Registration Statement are time-barred even applying the two-year statute. Id. 3 Although Plaintiffs allege that the Bari Study article was published in June 2005, AC ¶ 66, it was actually published in May. See 5/19/05 P.R. Plaintiffs' error is irrelevant to the limitations 28 analysis, however, as the case was first filed on July 5, 2007 ­ more than two years after either date.
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1 Registration Statements concerning the Bari Study and liver toxicity was disclosed more than a year 2 before Plaintiffs filed their case, their '33 Act claims are time-barred. The defect cannot be cured. 3
Plaintiffs argue generally that their claims are not time-barred because Defendants'

4 disclosures were insufficient "storm warnings" to trigger the running of the limitations period. 5 Opp. at 14-15. Plaintiffs' reliance on the catch-phrase "storm warnings" in lieu of the actual legal 6 standard is a subterfuge often criticized by courts. E.g., In re Eli Lilly & Co. Sec. Litig., 2008 U.S. 7 Dist. LEXIS 38823 (E.D.N.Y. 2008). According to the Second Circuit, the source of Plaintiffs' 8 "storm warnings" language, the actual standard is as follows: 9 10
Inquiry notice ­ often called "storm warnings" in the securities context ­ gives rise to a duty of inquiry when the circumstances would suggest to an investor of ordinary intelligence the probability that she has been defrauded.

11 Lentell v. Merrill Lynch & Co., 396 F.3d 161, 168 (2d Cir. 2005) (internal quotations omitted). 12 Applying this standard, Threshold's May 2005 and May 2006 disclosures triggered the limitations 13 period. 14
We begin with May 11, 2006. According to the allegations, the press release and investor

15 call that day: (a) disclosed the facts about liver toxicity in prior studies that Plaintiffs say 16 Defendants knew but omitted from the Registration Statements, and (b) caused a one-day stock 17 price decline of more than 75%. AC ¶¶ 39, 71, 102-03. Among other things, Plaintiffs allege that 18 Threshold's medical director, Alan Colowick, "conceded" that there had been prior studies showing 19 liver toxicity. Id. ¶¶ 39, 71. These disclosures required investors to inquire into possible claims. 20
Plaintiffs contend that the May 11 disclosures were still misleading because Dr. Colowick
4 21 tried to reassure investors on the call. See AC ¶¶ 103-07. But under the storm warnings standard,

22 the import of Dr. Colowick's "concession" and the 75% price decline is clear. See AC ¶¶ 71, 103. 23 Plaintiffs cannot have matters both ways. If, as Plaintiffs allege, Defendants should have disclosed 24 prior studies mentioning liver toxicity when they filed the Registration Statements, the May 11 25 disclosures made clear that such prior studies existed. See 5/11/06 Tr. Indeed, Plaintiffs allege that 26 shortly after May 11 (but still more than a year pre-suit), analysts reviewed older scientific articles 27 and noted mentions of liver problems. AC ¶ 70; see also Opp. at 20 n.21. 28
4

We discuss in Part IV(A)(3) the reasons the May 11, 2006 disclosures are not actionable.

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1

The same is true of the May 17, 2005, press release announcing publication of the Bari

2 Study. Plaintiffs say the Bari Study article cannot have put investors on limitations-period notice 3 even though Threshold brought it to the market's attention with its press release. Opp. at 15. The 4 cases hold otherwise. Inquiry notice can be triggered by "a wide variety of public documents and 5 other sources," including "any financial, legal, or other data." E.g., Eli Lilly, 2008 U.S. Dist. 6 LEXIS 38823 at *31 (citing cases). In fact, "[e]ven a single news article can provide sufficiently 7 strong omens to place a plaintiff on notice of the need for investigation." Id. (citations omitted). 8
Plaintiffs' contrary assertion is, again, simply a wish to have it both ways. On the one hand,

9 they say that the Registration Statements were deficient for not describing details of the Bari Study. 10 AC ¶¶ 64-65, 77-78. Yet when Threshold itself alerted the markets shortly after its IPO to a new 11 article detailing the Study (discussing the same points the Complaint says were omitted), they claim 12 this was insufficient to alert investors to inquire ­ even though the publication led analysts to do 13 just that (and then publish reports reflecting the Bari Study details). See, e.g., Fortis.5 Under 14 myriad cases with facts analogous to those here, Plaintiffs' argument fails. E.g., In re Alamosa 15 Holdings, Inc. Sec. Litig., 382 F. Supp. 2d 832, 863-64 (N.D. Tex. 2005) (press release alleged to 16 be an "admission" of misrepresentations in prospectus triggered limitations period); Miller v. 17 Nationwide Life Ins. Co., 391 F.3d 698, 700 (5th Cir. 2004) (supplemental prospectus discussing 18 amendment of certain provisions put investors on notice of misstatements in initial prospectus); In 19 re USEC Sec. Litig., 190 F. Supp. 2d 808, 818 (D. Md. 2002) (press release announcing 20 abandonment of technology development project made apparent "the falsity of the statement in the 21 prospectus that [the technology] would soon be deployed," triggering limitations period), aff'd sub 22 nom. Cohen v. USEC, Inc., 2003 U.S. App. LEXIS 14546, **21-25 (4th Cir. 2003).6 23
5

24 period applicable to the October 2005 follow-on offering because it pre-dated the Registration 25 ¶ 121-22. As we discuss below, the price of a security in an efficient market reflects all

Plaintiffs say that the May 17, 2005 disclosure could have had no effect on the limitations

Statement. See Opp. at 15 n.15. Plaintiffs ignore the fraud-on-the-market nature of their case. AC

26 (emphasis added), meaning the Bari Study information published in May 2005 was reflected in 27 Plaintiffs also ignore the May 11, 2006 announcement that pre-dated their lawsuit by 14 months. 28
Plaintiffs also argue that the Bari Study article did not trigger notice because it also included positive statements about the study. Opp. at 15. Plaintiffs' argument is mere assertion;
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information available to the market, see, e.g., Basic Inc. v. Levinson, 485 U.S. 224, 247 (1988) Threshold's stock price, and therefore in the follow-on offering price. See infra Part III(B)(2).

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1

The face of the Complaint reflects that Plaintiffs' '33 Act claims are time-barred. The

2 claims must be dismissed, with prejudice. USEC at 817; In re Merck & Co., Sec. Deriv. & ERISA 3 Litig., 483 F. Supp. 2d 407, 417 (D.N.J. 2007). 4 III. 5 6 7 8
that the Registration Statement claims reduce to hindsight second-guessing of the Bari Study's THE '33 ACT CLAIMS ALSO FAIL BECAUSE PLAINTIFFS DO NOT IDENTIFY A MATERIALLY FALSE STATEMENT IN EITHER REGISTRATION STATEMENT7 A. The Registration Statements Are Not Actionable Under The Bespeaks Caution Doctrine and the PSLRA Safe Harbor

Stripped of rhetoric, the Opposition does nothing to undermine Defendants' basic point ­

9 10

design and the lack of disclosure about a risk of liver toxicity.8 Neither omission supports a claim. Nothing in Plaintiffs' 13 pages of argument about the Registration Statements, Opp. at 8-21,

11 12 they do not identify what these supposedly soothing statements said and how they could negate the 13 infra Part III(B)(2) (placebo effect disclosures). Moreover, positive language in a disclosure that
includes information suggesting possible prior misrepresentations does not absolve a plaintiff of a article's description of what the Bari Study was, and was not. See Opp. at 13-15; AC ¶ 74; see also

14 duty to inquire. See In re Merrill Lynch & Co. Research Reports Sec. Litig., 289 F. Supp. 2d 429, 15 190 F. Supp. 2d at 818 (notice that a registration statement is misleading in one respect is also 16 17 18 19 20 21 22 23 24 25 26 27 28

433 (S.D.N.Y. 2003). Finally, the claims still fail due to the May 11, 2006, disclosures. See USEC,

notice of other possible misstatements). 7 Plaintiffs say their '33 Act claims are not subject to Rule 9(b) because the Complaint "disclaims" allegations of fraud for those claims. Opp. at 7. But application of Rule 9(b) depends on the nature of the complaint's substantive allegations. See Vess v. Ciba-Geigy Corp. U.S.A., 317 F.3d 1097, 1103-05 (9th Cir. 2003) (Rule 9(b) applies where all claims are based on a unified course of fraudulent conduct). As the Ninth Circuit has held, boilerplate disclaimers of fraud do not suffice to avoid Rule 9(b). E.g., In re Stac Elect. Sec. Litig., 89 F.3d 1399, 1405 n.2 (9th Cir. 1996). Neither case that Plaintiffs cite says otherwise. See In re JDS Uniphase Corp. Sec. Litig., 2005 U.S. Dist. LEXIS 20831 at *33-*34 (N.D. Cal. 2005) (disclaimer coupled with allegations couched in language of "reasonableness"); In re Portal Software, Inc. Sec. Litig., 2006 U.S. Dist. LEXIS 61589 at *7-*8, *12 (N.D. Cal. 2006) (disclaimer "borne out" by negligence allegations). The Complaint's Section 10(b) claim incorporates all of the Complaint's earlier allegations, including those based on the Registration Statements. AC ¶ 177. The allegations reflect a unified course of fraudulent conduct that purportedly began with Defendants' "quick" Bari Study to gin up a way to raise money from unsuspecting investors as private investment was "drying up." E.g., AC ¶¶ 2-6. As such, Rule 9(b) applies. As Plaintiffs' Opposition does not seriously contest Defendants' Rule 9(b) motion as it pertains to the Registration Statements, all claims based on the Registration Statements should be dismissed on this additional ground. 8 Plaintiffs try to disguise this essential point by fabricating allegations that were not in the Complaint. For example, Plaintiffs say that Threshold's offering documents used the Bari Study to compare TH-070 with two other drugs, Flomax and Proscar, supposedly claiming that TH-070 "worked far better with fewer side effects" than either approved BPH treatment. See Opp. at 4 (citing AC ¶¶ 56, 63 & 70); see also Opp. at 10-11. This is just untrue, and none of the cited allegations (or any others) reflects any such comparison. See also IPO R.S. at 47; 10/05 R.S. at 46. As such, the discussion of inappropriate comparisons from Kaplan v. Rose, 49 F.3d 1363, 1371-72 (9th Cir. 1994), see Opp. at 10-11, is inapposite.
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1 challenges this fundamental truth: a person considering an investment in Threshold in 2005 could 2 not have read the Registration Statements, with their 18 pages of risk disclosures, without 3 understanding the highly speculative nature of the investment. Threshold made clear that its 4 Metabolic Targeting technology, along with TH-070 and its other drug candidates, were 5 "unproven;" the point of the stock offerings was to raise capital needed to test whether they would 6 work or not. Under any fair reading, the Registration Statements made this abundantly clear. Yes, 7 Threshold described the Bari Study and said it was promising (which it was). But they also made 8 clear that that Study was preliminary and open-label and would need to be supplemented with 9 additional clinical trials to prove safety and efficacy, the outcome of which was uncertain. IPO 10 R.S. at 3; 10/05 R.S. at 2, 47-48. Thus, the disclosures did precisely what the securities laws intend 11 ­ to advise investors through detailed, meaningful cautions that Threshold had nothing certain 12 before it but was instead a fledgling company experimenting to determine whether a promising idea 13 might be commercialized.9 No reasonable investor could have been misled. See Mot. at 3-4, 1114 15; see also, e.g., In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1420-21 (9th Cir.1994). 15
Plaintiffs' response to the actual disclosure record is circular: they essentially say that

16 Threshold could not have bespoken enough caution or included enough meaningful cautionary 17 language because, ultimately, something went badly. Once again, they point to purported 18 deficiencies in the design of the Bari Study and the fact that liver toxicity was later detected. See 19 Opp. at 16-21. But the law does not require an exact match between the risks disclosed and the 20 later outcome. E.g., Harris v. IVAX Corp., 182 F.3d 799, 807 (11th Cir. 1999); In re Infonet 21 Services Corp. Sec. Litig., 310 F. Supp. 2d 1080, 1091-92 (C.D. Cal. 2003).10 And in any case, 22 23 24 25 26 27 28
Plaintiffs assert that the bespeaks caution doctrine and safe-harbor are inapplicable because they allege omissions on matters of historical fact. Opp. at 16. But Plaintiffs' claim is that Defendants misled investors about TH-070's future prospects. See, e.g., AC ¶ 64 (Defendants failed to disclose "risks associated with TH-070" and that Bari Study results "were unreliable indicators" of future success). Noble Asset Mgmt. v. Allos Therapeutics, Inc., 2005 U.S. Dist. LEXIS 24452 at *26 (D. Col. 2005) (prospects for FDA approval "forward-looking"). 10 The cases Plaintiffs cite, Opp. at 17, do not suggest otherwise. Instead, they stand for the unremarkable proposition that risk disclosures do not cure failures to disclose a specific, known risk. See In re Amylin Pharm., Inc. Sec. Litig., 2003 U.S. Dist. LEXIS 7667, at *21-22 (S.D. Cal. 2003) (Amylin II); Warshaw v. Xoma Corp., 74 F.3d 955, 959 (9th Cir. 1996); In re Regeneron Pharm. Sec. Litig., 2005 U.S. Dist. LEXIS 1350, at *54-55 (S.D.N.Y. 2005).
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1 Plaintiffs' responses are simply more of the same insufficient claims they have asserted from the 2 start. 3 4 5
Bari Study were demonstrably false (as the allegedly omitted facts were in fact in the Registration B. The Information Allegedly Omitted From The Registration Statements About The Bari Study Either Was In Fact Disclosed Or Was Immaterial

In Defendants' motion, at 11-16, we showed that most of Plaintiffs' allegations about the

6
Statements) or amounted to impermissible criticism of the Study's (appropriately disclosed) design.

7 8 9
Plaintiffs change direction. The new response, belied by their pleading, is that they are not second1. The Bari Study's Design Unable to counter that the basic points they claim were omitted were in fact disclosed,

10
guessing the Bari Study's design, but complaining that the study had "no design at all." Opp. at

11 12

10.11 Again eschewing their own allegations, Plaintiffs say they are not contending that the lack of a placebo arm to the study was concealed; their problem, they now say, is that no one explained the

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

supposed particular importance of a placebo arm to a study of a prostate drug. Id.12 The assertions serve only to point up how thin Plaintiffs' claims really are.13 Plaintiffs' new contention is facially absurd. While the Bari Study may have had certain (disclosed) limitations because of its design, it clearly had a design. For example, no one has suggested that patients were given randomly sized doses of TH-070 whenever the mood struck the researchers. See IPO R.S. at 48-49 (explaining Bari Study design); 10/05 R.S. at 46-47; see also AC ¶¶ 51, 54-55. Plaintiffs' "no design" argument is just a hyperbolic disparagement the Study's design, which does not state a securities claim. Mot. at 12. 12 The Opposition repeats, multiple times, that the Registration Statements did not disclose a supposed "well-document placebo effect" that threatened to render the Bari Study misleading (despite the conceded disclosure that the Study had no placebo arm). Opp. at 8, 10-11, 17. But the Complaint alleges no facts from which it could be inferred that such an effect had been established and was known by anyone, much less by Defendants, when the Registration Statements were issued. The Complaint points to three academic articles. See AC ¶ 67. None relates to TH-070 or lonidamine; and one actually belies Plaintiffs' argument by observing that numerous studies had found no significant placebo effect with BPH treatments. See Reply Declaration of Alexander Lyon Ex. O at 386; see also id. Ex. P at 146 & Ex. Q at 374. The articles simply do not constitute scientific data suggesting that "placebo risk was much greater" with respect to TH-070 than with other non-placebo controlled studies; and Plaintiffs' assertion to that effect, Opp. at 10, cannot defeat this motion. In re VeriFone Sec. Litig., 11 F.3d 865, 868 (9th Cir. 1993) ("[c]onclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss"). 13 Perhaps recognizing this inadequacy, Plaintiffs ironically resort to mischaracterization in an effort to suggest that Defendants misled investors through ­ that's correct ­ mischaracterization. An example is Plaintiffs' new assertion that Defendants lied in the Registration Statement that "TH070 kills prostate cells," supposedly because later clinical studies showed this to be untrue. See Opp. at 9-10. Plaintiffs overreach. First, what the Registration Statement actually said was "[b]y targeting the metabolism of glucose and other processes that are essential for prostate cell viability,
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1

Whatever spin Plaintiffs may try to place on the Complaint, their allegations are post hoc

2 second-guessing based on how TH-070's clinical trials eventually turned out. Even if it might have 3 been a good idea to structure the Bari Study differently or to conduct some other type of study, 4 clinical judgments ­ good or bad ­ cannot support a securities claim. See Mot. at 16 n.7.14 5 6
2. The Bari Study's Publication

If, as Plaintiffs allege, AC ¶ 66, the Bari Study's flaws were identified in the June 2005

7 article written by its principal investigators, it follows as a matter of law that the October 2005 8 Registration Statement's alleged failure to discuss those flaws was immaterial. This mandates 9 dismissal of Bari Study claims related to the October 2005 follow-on offering.15 10
For an omission to be material, there must be a substantial likelihood that disclosure of the

11 fact would have been viewed by a reasonable investor as having significantly altered the "total mix" 12 of available information. Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Where a company's 13 stock is alleged to have traded on an "efficient market," as it is here, AC ¶¶ 121-22, this "total mix" 14 includes all relevant public information about the company, all of which is reflected in its stock 15 price. Basic at 247. Where information is already public, its omission from a company's later 16 disclosure is not material. See, e.g., In re Convergent Techs. Sec. Litig., 948 F.2d 507, 513 (9th Cir. 17
TH-070 kills prostate cells, reducing the size of the prostate, and therefore may provide an effective the full statement cannot be read as an assurance that TH-070 would be an effective BPH treatment. did not show the original statement to be false. What the data showed was that "the Phase 3 trial 7/17/06 P.R. ("IPSS" or "International Prostate Symptom Score" is a self-administered

18 treatment for symptomatic BPH." 10/05 R.S. at 2, 46; see also IPO R.S. at 47. Even in isolation,

19 Second, the clinical trial data that 17 months later led Threshold to discontinue its TH-070 program 20 did not achieve a statistically significant difference in IPSS between TH-070 and placebo." See 21 questionnaire used to assess lower urinary tract symptoms. IPO R.S. at 48; AC ¶ 36.) The failure
of TH-070 to achieve its hoped-for clinical targets does not mean that the Registration Statements

22 were false or that TH-070 did not kill prostate cells. Cf. Kaplan, 49 F.3d at 1373 (defendants' later 23 24 25 26 27 28

statement did not suggest their registration statement was false). 14 Plaintiffs rely on Amylin II and In re Immune Response Sec. Litig. Opp. at 11. But facts critical in those cases are absent here. In Amylin II, the defendant company affirmatively told investors that its clinical trial results met FDA approval requirements while failing to disclose that the FDA had already raised concerns about the trials' sufficiency. 2003 U.S. Dist. LEXIS 7667 at *22-*23 And in Immune Response, 375 F. Supp. 2d 983, 1010 (S.D. Cal. 2005), the defendants allegedly touted promising results from a preliminary clinical trial while failing to disclose negative results they had already received from a much larger trial. As similar facts are not alleged here, these cases serve only to highlight what is missing from the Complaint: allegations of contemporaneous known facts that contradicted or undermined the Bari Study's findings. 15 As noted, the June 2005 publication of the Bari Study article is also relevant to the IPO Registration Statement claims because it triggered the limitations period. See supra Part II.
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1 1991) (dismissing claims where analyst reports and articles, including one published before the 2 prospectus, left "no doubt" the market was aware that demand for the company's product would not 3 increase as it had been and that there was a risk of obsolescence for older technology) (summary 4 judgment), superseded by statute on other grounds as stated in In re Harmonic Inc. Sec. Litig., 163 5 F. Supp. 2d 1079 (N.D. Cal. 2001); Rubke v. Capitol Bancorp Ltd., 460 F. Supp. 2d 1124, 1140, 6 1146 (N.D. Cal. 2006) (already-public information about a prior share exchange); In re Merrill 7 Lynch & Co., 272 F. Supp. 2d 243, 249-50 (S.D.N.Y. 2003) (already public that defendant provided 8 investment banking services to companies in the fund's portfolio). 9
These principles are fatal to claims based on the Bari Study. The Complaint alleges that in

10 June 2005, four months before the follow-on offering, the Bari Study's principal investigator 11 published an article in which he "warned that the Bari Study was a `proof of concept' study" and 12 stated that "`[t]he drawback in this design is the placebo effect that may elicit misleading results, if 13 not properly corrected for, especially considering the small number of patients and the absence of a 14 blind run-in period.'" AC ¶ 66. This is precisely what Plaintiffs say should have been in the 15 October 2005 Registration Statement. AC ¶ 78. But because the article was public, Threshold's 16 stock price reflected all information in the article. And it was reflected in the price for the stock 17 Threshold sold in its October 12, 2005, offering because Threshold priced that stock at the previous 18 day's market close. Compare AC ¶ 75 ($10.46 follow-on offering price) with Lyon Reply Dec. Ex. 19 R ($10.46 10/11/05 closing price). As a matter of law, then, any supposed omission from the 20 Registration Statement of information from the Bari Study article was immaterial. 21
Plaintiffs try to escape this conclusion by asserting that materiality is assessed differently for

22 '33 Act claims than for '34 Act claims, and that materiality with respect to a Registration Statement 23 is determined solely with reference to the document. Opp. at 11-12 nn.11 & 12. But the law is 24 clear that the materiality concept "applies equally to both statutory provisions." Worlds of Wonder, 25 35 F.3d at 1415 n.3. As noted, many courts have dismissed '33 Act claims on grounds that publicly 26 available information outside the prospectus rendered alleged omissions immaterial. See also 27 Kapps v. Torch Offshore, Inc., 379 F.3d 207, 216 (5th Cir. 2004) (total mix includes information 28 "that is and has been in the readily available general public domain and facts known or reasonably
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1 available to the shareholders"); Klein v. GNC, Inc., 186 F.3d 338, 342-43 (3rd Cir. 1999) ('33 Act 2 materiality determination takes into account availability of the information in the public domain).16 3 4
C. The Scientific Data Did Not Indicate A Material Risk Of Liver Toxicity

The Registration Statements warned that TH-070 could cause as-yet unknown side effects

5 that could affect FDA approval and specifically called out the side effects that had been identified 6 over the decades that lonidamine had been in use in Europe as a cancer therapy. 10/05 R.S. at 9; 7 IPO R.S. at 10. Plaintiffs say these disclosures were insufficient, however, because they did not 8 discuss liver toxicity "trends" allegedly documented in scientific literature relating to lonidamine. 9 Opp. at 18-21. But as with their "well documented placebo effect," the "liver toxicity trends" are a 10 rhetorical illusion. The facts alleged do not come close to showing a "trend;" indeed, they only 11 confirm that liver toxicity was not a known material risk to TH-070's development at the time. 12
Plaintiffs point to five paragraphs of the Complaint as support for their "trend." Opp. at 18.

13 Three of these allege that Defendants "admitted" to evidence of liver toxicity when Dr. Colowick 14 stated on May 11, 2006, "[t]here are studies in which numerically, in some studies, the liver toxicity 15 was higher numerically." See AC ¶¶ 33, 38 & 39. The other two cite a 1996 study of lonidamine's 16 effect on dogs which, Plaintiffs say, "found significant liver malfunction occurred at high 17 intravenous doses and suspicious lesions, and unpredictable toxicity occurred even after oral 18 dosing." See ¶¶ 70-71. Nothing about these allegations supports an inference that liver toxicity 19 was recognized as a material risk, or should have been. Indeed, Plaintiffs' allegations concede that: 20 21 22 23 24 25 26 27 28
Neither case Plaintiffs cite, see Opp. at 12, holds otherwise. In Miller v. Thane Int'l, Inc., 519 F.3d 879 (9th Cir. 2008), the Court declined to hold that minor wording changes among drafts of registration statements filed with the SEC put the market on notice of a significant change in a proposed merger. Id. at 882-84, 887. And in Kaplan v. Rose, the court held actionable a failure to disclose results of a clinical trial where the issuer's statements in a prospectus about the clinical study included an express claim that the issuer's product's performance compared favorably with those of competitors. 49 F.3d at 1374. In both cases, the omitted information was otherwise unknown to investors. Neither case supports the notion that information in an article, the publication of which is highlighted in a company press release and then discussed by analysts in independent reports they issued, is not part of the "total mix" of information. See Mot. at 12 n.5.
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· · ·

the liver toxicity referenced by Dr. Colowick was "anecdotal," AC ¶ 39, the dog study was one of at least 80 studies relating to lonidamine, AC ¶ 38, and none of those 80 studies showed a statistically significant incidence of liver toxicity in humans, AC ¶ 72.

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1 Plaintiffs also do not dispute that lonidamine had received regulatory approval in Italy, AC ¶ 38; 2 the FDA approved human clinical trials of TH-070 in the United States, 10/05 R.S. at 47; and other 3 animal studies cited in the Registration Statements showed lonidamine to be well tolerated, IPO 4 R.S. at 3, 47. These undisputed facts cannot support an inference that liver toxicity represented an 5 important threat to TH-070's prospects, at least based on the information at the time. See In re 6 Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996) ("unwarranted inferences are insufficient 7 to defeat a motion to dismiss for failure to state a claim.") (internal citations omitted).17 8
Unable to meet the actual materiality standard, Plaintiffs again try lowering their bar. Even

9 if the scientific evidence was slight, they argue, data lacking statistical significance is not per se 10 immaterial, and Defendants had to disclose even slightly negative data because they had "gone to 11 great lengths to tout the apparent safety of lonidamine based on its prior use to treat cancer patients" 12 and had made "false claims that the Bari Study had been designed to determine whether the drug 13 was safe and tolerable...." Opp. at 18-21, 25-26 (original emphasis). Again the arguments fail. 14
Plaintiffs say that Threshold "touted" lonidamine's safety based on its prior use in cancer

15 patients; but they do not (a) dispute that lonidamine was in fact used this way for many years, (b) 16 challenge the accuracy of any statements Threshold made about that use, or (c) point to anything in 17 the Registration Statements suggesting that the prior use meant TH-070 would prove a safe and 18 effective BPH treatment. To the contrary, Plaintiffs admit that Defendants never claimed the Bari 19 Study showed TH-070 to be safe and effective, Opp. at 9-10; and that the Registration Statements 20 specifically warned that further studies were needed to determine safety and efficacy, id. at 17.18 21
17

22 toxicity by the fact that one patient in the Bari Study developed a possible sign of liver malfunction. 23 included liver-challenged patients, it is hard to see why one would attribute significance to this fact. 24 25 26 27 28
These concessions render curious Plaintiffs' contention, Opp at 10, that the Registration Statements were misleading in saying that the Bari Study's "primary objective" was to show the safety and efficacy of TH-070. First, the Registration Statements said the primary objective was "to determine the safety and tolerability of TH-070 in patients with BPH." IPO R.S. at 3 (emphasis added); AC ¶ 63. Second, Threshold described the Bari Study as a "Phase 2 trial." As such, investors knew it could not resolve the safety and efficacy questions. See 21 C.F.R. § 312.21(c) (mandating Phase 3 studies for this purpose). Threshold also specifically warned that further trials were needed to prove safety and efficacy. See Mot. at 13. With these facts and Plaintiffs' concession that Defendants never held out the Bari Study as proof that TH-070 was safe and effective, Opp. at 9-10, it is unclear what about the "primary objective" phrase was misleading.
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At one point, Plaintiffs allege that Defendants should have been alerted to the risk of liver

AC ¶¶ 65(f)-(g). But if, as Plaintiffs allege, AC ¶¶ 65(f)-(g), 72, the Bari Study's population

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1 Nothing about Threshold's supposed "touting" of lonidamine's actual safety record in dozens of 2 studies over years of use supports some duty to disclose otherwise immaterial information. 3
None of Plaintiffs' cases supports their suggestion that they can state '33 Act claims based

4 on the omission of clinical data that they admit was anecdotal and not statistically significant. 5 Compare In re Immune Response Sec. Litig., 375 F. Supp. 2d 983, 1021 (S.D. Cal. 2005) (negative 6 efficacy data was statistically significant); Gargiulo v. Isolagen, Inc., 527 F. Supp. 2d 384, 391 7 (E.D. Pa. 2007) (omission concerned design of a cellular therapy technology, not clinical data). 8 Indeed, the Amylin cases, on which Plaintiffs rely, highlight what is lacking from the Complaint. 9 The court there relied on alleged "facts showing that Amylin knew that some correlation existed 10 between [the drug] and [the side effect]." In re Amylin Pharm., Inc. Sec. Litig., 2002 U.S. Dist. 11 LEXIS 19481 (S.D. Cal. 2002) (Amylin I) at *17-*19. There are no analogous allegations here. 12
The absence of legal support for Plaintiffs' argument is not surprising. If drug companies

13 could be subjected to securities liability for failing to discuss every risk that might in theory arise in 14 developing a new drug, including risks explored and rejected in extensive prior literature, the 15 resulting disclosures would "bury the shareholders in an avalanche of trivial information." Basic, 16 485 U.S. at 231 (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 448-49 (1976)). Such a 17 rule would undermine the purpose of the securities laws' disclosure requirements, nonsensically 18 burdening investors with determining which risks are important and which are not.19 19 IV. 20 21
PLAINTIFFS' SECTION 10(B) CLAIM SHOULD BE DISMISSED A. Plaintiffs' Narrowed Fraud Claim Still Lacks The Required Particularity

In the opening brief, Defendants showed that the theory of fraud alleged in the Complaint

22 fails to satisfy Rule 9(b) or the PSLRA. Mot. at 21-24. In response, Plaintiffs retreat and now posit 23 a much more limited fraud claim ­ that in five statements during the short period March 1 to May 24 11, 2006 (all more than a year after the IPO), Defendants allegedly misled investors by failing to 25
It is worth pausing to note that, while liver toxicity led to the clinical trial hold in May 2006, it was the efficacy results, learned only when Threshold unblinded the Phase 2 trial data 27 during the hold period, that resulted in the decision to discontinue TH-070 development. See 7/17/06 P.R. Many drugs receive FDA approval, and are successfully marketed, despite risk of 28 liver-related side effects, as anyone who has seen television advertisements for prescription drugs knows. See 21 C.F.R. § 202.1(e)(1) (requiring disclosure of side effects in drug advertising).
19

26

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1 reveal supposed "problems that had already arisen" in Threshold's ongoing Phase 2 and 3 clinical 2 trials. Opp. at 2. This truncated theory cannot be squared with the Complaint's sweeping fraud 3 allegations and so must be rejected. Barbera v. WMC Mortgage Corp., 2006 WL 167632, at *2 4 (N.D. Cal. 2006) (citing Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1107 (7th Cir.1984)) 5 ("axiomatic" that complaint cannot be amended by briefs opposing a motion to dismiss). 6
Taking Plaintiffs at their word, however, their narrowed fraud claim is still not pled with the

7 required particularity, and they still fail to plead facts supporting a cogent and compelling inference 8 of scienter. Plaintiffs' claim still relies principally on misquotations of Threshold employees, 9 unfounded inferences about Dr. Selick's supposed advance knowledge of blinded clinical trial 10 results, and "serious adverse event" ("SAE") reports that Plaintiffs do not allege to have had any 11 statistical significance prior to the time Threshold disclosed them. 12 13 14
allegedly made during Threshold's March 1, 2006, investor conference call. Opp. at 22-24; see 1. Plaintiffs' Misquotation Of Dr. Selick's March 1, 2006 Conference Call Statement Does Not Adequately Plead Fraud

Plaintiffs now assert that Defendants' first fraudulent act was a statement Dr. Selick

15
also AC ¶¶ 87-89. Any supposed fraud claim based on this alleged statement fails for two reasons.

16
First, the Complaint misquotes Dr. Selick. Plaintiffs do not seriously dispute that, as shown

17
in Defendants' opening papers, Mot. at 19-20; Lyon Dec. Ex. H at 2:50-3:08, 9:44-9:55, Dr. Selick

18
never said what they allege. Instead, Plaintiffs argue that the Court must ignore the actual

19
recording of the call, and allow Plaintiffs to proceed based upon an obvious error. See Opp. at 23-

20
24. This is not the law. Even on a motion to dismiss, the Court need not accept as true allegations

21
that contradict judicially noticeable facts. E.g., Intri-Plex Technologies, Inc. v. Crest Group, Inc.,

22
499 F.3d 1048, 1052 (9th Cir. 2007); Mullis v. United States Bankr. Ct., 828 F.2d 1385, 1388 (9th

23
Cir. 1987). The Court may also consider documents whose contents are alleged in a complaint or

24
on which the complaint relies. Mot. at 3 n.1 (citing cases). Where such materials reveal that a

25
defendant's actual statement differs from what is alleged, the actual statement prevails. See

26
Nishimatsu Constr. Co., Ltd. v. Houston Nat'l Bank, 515 F.2d 1200, 1206-07 (5th Cir. 1975).

27
Indeed, it defies logic to believe that, despite the high pleading standards established by Congress in

28
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1 the PSLRA and by courts in cases such as Tellabs and Silicon Graphics, a plaintiff could proceed 2 with one of these onerous suits merely by alleging statements that demonstrably were never made. 3 See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499, 2509 (2007) (PSLRA's purpose is 4 "to curb frivolous, lawyer-driven litigation"); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 5 547 U.S. 71, 81-82 (2006) (Congress wished to deter meritless suits).20 6
Second, even were the Court required to accept the erroneous allegation about what Dr.

7 Selick said, the claim would still fail because the Complaint alleges no particular facts about what 8 Dr. Selick supposedly knew about the then-ongoing clinical trials that would have made the alleged 9 statement false. Plaintiffs acknowledge that those clinical trials were placebo-controlled and 10 blinded, AC ¶¶ 76, 87 ­ facts at odds with the idea that the data were available. Not surprisingly, 11 then, Plaintiffs fail to allege with particularity any adverse clinical data that had even arisen by 12 March 1, let alone that was known to Dr. Selick. As such, Plaintiffs' "a fortiori" assertion, Opp. at 13 24; see also AC ¶ 89, that Dr. Selick had advance knowledge of the clinical trial data (or was 14 reckless in not knowing it) is insufficient. For example, in Cell Therapeutics, the Court dismissed 15 allegations that a CEO "must have learned" adverse facts about ongoing clinical trials about which 16 he was alleged to have made misleading positive statements because plaintiffs failed to allege when 17 the CEO reviewed Case Report Forms from the trials, how many were examined and in what 18 context. Heywood v. Cell Therapeutics, 2006 U.S. Dist. LEXIS 28684 at *17 (W.D. Wash. 2006); 19 see also Steiner v. Hale, 868 F. Supp. 284, 287 (S.D. Cal. 1993) (equivocal speculation that 20 defendant may have known facts contrary to his statement insufficient); see Mot. at 23. 21 22 23 24
20

2.

The March 20, April 5, and May 10, 2006, Press Releases Were Not Rendered Misleading By The Appearance Of SAEs In Clinical Trials

Plaintiffs contend that three Threshold press releases ­ on March 20, April 5, and May 10,

Contrary to Plaintiffs' suggestion, Opp. at 23, Defendants do not ask the Court to resolve

25 a fact question about which competing transcript is more accurate ­ although it bears noting that the
transcript Plaintiffs rely upon states that it "may not be 100 percent accurate," may contain

26 "inaccuracies" and was provided "solely for [] personal, non-commercial use." Herman Dec. Ex. A 27 and evaluate whether Plaintiffs' allegation survives as a matter of law. Nor do Defendants rely on
the documents submitted with their motion for the truth of what they assert. Instead, they are judicially noticeable. See Reply in Support of Defendants' Request for Judicial Notice.

at 6-7. Rather, Defendants urge the Court to listen to the recording of what Dr. Selick actually said,

28 offered only to show what was actually said to the market, a purpose for which the documents are
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1 2006 ­ announcing milestones in the clinical trials were misleading because by then, Defendants 2 supposedly knew but did not disclose liver toxicity issues that had arisen. Opp. at 24. Beyond the 3 unsupported assertion that Dr. Selick or others at Threshold somehow had early access to blinded 4 clinical trial data, see supra Part IV(A)(1), this claim depends on allegations that Defendants should 5 have disclosed that it had received reports of SAEs related to abnormal liver enzymes. AC ¶¶ 956 97, 100-01; Opp. at 22, 24, 26. The SAE allegations cannot support a claim. 7
First, Plaintiffs offer no effective response to the many cases holding that negative clinical

8 information such as an SAE is immaterial as a matter of law absent something more ­ an allegation, 9 absent here, that the adverse data was statistically significant and sufficient to threaten the drug's 10 commercial prospects. See Mot. at 17-19. All Plaintiffs do is to observe generally that materiality 11 is fact-specific. Opp. at 25. But courts routinely resolve materiality as a matter of law on motions 12 to dismiss where (as here) the allegations are insufficient to suggest materiality. E.g., VeriFone, 11 13 F.3d at 870; Grossman v. Novell, Inc., 120 F.3d 1112, 1118 (10th Cir. 1997). Plaintiffs do not 14 dispute that, under FDA rules, myriad events constitute SAEs despite having nothing to do with the 15 study drug, much less its safety, efficacy or prospects for commercial success. Mot. at 18 (citing 21 16 C.F.R. § 312.32).21 Nor do Plaintiffs dispute that their argument effectively implies the novel ­ and 17 unsalutary ­ rule that any SAE be disclosed as soon as it arises. Not surprisingly, Plaintiffs point to 18 no case in which the report of SAEs, without more, suffices to state a claim.22 19
In any case, the SAE allegations cannot support fraud claims based on the March 20 and

20 April 5 press releases as they pre-date the first report of an SAE alleged in the Complaint. AC ¶¶ 21 97-99. Plaintiffs assert that Defendants "would have" investigated before reporting an SAE to the 22
21

23 Defendants, Mot. at 18-19, on grounds that the cases involved already-approved drugs rather than 24 explain why the distinction matters, and there is no apparent reason why it would. 25
22

Plaintiffs also attempt to distinguish the Oran and Carter-Wallace cases cited by

a drug candidate. See Opp. at 18, 25-26. The attempt is unavailing because Plaintiffs do not

Plaintiffs' reliance on In re Bayer AG Sec. Litig., 2004 U.S. Dist. LEXIS 19593 (S.D.N.Y. 2004), is misplaced. In Bayer, plaintiffs alleged that the company was inundated with 26 adverse event reports and that company scientists had reached consensus that the data "put[] the brand at risk" Id. at * 11-13, 33. Plaintiffs here allege nothing like this. Nor does In re Amgen, 27 Inc. Sec. Litig., 2008 U.S. Dist. LEXIS 24611 (C.D. Cal. 2008), support Plaintiffs. That case involved the duty to disclose the cessation of a clinical study that defendants had asserted would 28 allow them to address safety concerns raised by the FDA. Id. at *39-40. Again, no such facts are alleged here; and it is undisputed that the Defendants promptly disclosed the partial clinical hold.
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1 FDA and so "most likely" were aware of it prior to April 10, 2006. Opp. at 26. But this is 2 speculation, not fact. Likewise, CW6's supposed assertion that Threshold knew of the SAEs "by 3 April 2006," AC ¶¶ 97, 99, lacks any specifics. Cell Therapeutics, 2006 U.S. Dist. LEXIS 28684, 4 at *18 (rejecting such "generalized and speculative" assertions about what others knew and when). 5 6 7
misleading because Defendants allegedly did not reveal the supposed "full extent" of liver toxicity 3. The May 11, 2006, Press Release and Conference Call Cannot Support A Fraud Claim Either

Plaintiffs also argue that Threshold's May 11, 2006, p